For 50 and older, time for some serious saving

Calculating retirement needs at a critical point

Sep. 25, 2011

There's one line of thought that a person's later years are a time for slowing the pace somewhat.

When it comes to preparing for retirement, however, it's actually a time to gear up and get moving.

Folks age 50 and over need to take a focused look at their financial condition and decide: Do I have enough to retire when I choose? Do I need to supercharge my savings habits to get there? How do I make the switch from putting money in to taking money out?

"It's a mess" trying to figure out the complexities of tapping various accounts in a sequence that will minimize taxes, said Paul Baumbach, financial planner with Mallard Advisors in Newark. "There's a lot of guidance on how to invest and how to put money into investments, but not much on how to take it out."

The key is to withdraw funds at a rate that will sustain savings while funding an adequate retirement. A general rule is to take out no more than 4 percent to 5 percent a year, ensuring that overall savings won't diminish too drastically.

It's also a good idea to ensure the house and other major debts are paid off by retirement age, and to begin backing away from risky investments, advisers say.

Those who find their savings won't support their desired retirement lifestyle have a stark choice to make, said Kate Warne, chief investment strategist at Edward Jones -- save more, work longer or accept a less bountiful retirement lifestyle.

There's also the possibility of playing "catch-up" with savings -- workers over age 50 are allowed by law to boost their 401(k) contributions to a maximum of $22,000 a year, and up to $6,000 to a traditional or Roth IRA. Reverse mortgages are another option to make up the shortfall.

Still, "more and more of the nonretired are waking up to the idea they're going to have to work longer," said Eric Brucker, an economics professor who researches retirement issues at Widener University.

That realization became more acute once the recession hit in 2007, he said.

At the time, 48 percent of the people he surveyed thought they would be able to retire before age 65. "Now it's down to 42 percent. That's a six-point drop there, which is significant," he said.

To ensure savings are sufficient, some advisers suggest giving your post-retirement budget a "trial run" while still working.

This not only will test assumptions on things you have built into your plan -- like seeing if your estimate for health care costs measures up to rapidly escalating costs for drugs or medical procedures -- it also will refocus your attention on where your money is going today.